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Analysis

Earnings Preview: Will Q2 FY23’s earnings be a turning point for Alibaba’s tepid performance?

alibaba

The Chines e-commerce giant, Alibaba, is to report its second-quarter earnings for the fiscal year 2023 before the US markets open later today. The company’s shares rebounded 365% from its October low but are still down 75% from the October high in 2021 due to the macro headwinds and Beijing’s regulatory crackdown on Chinese tech companies. In the upcoming earnings report, it's mainstream business, e-commerce sales will be on close watch, along with its growing cloud business.

An improvement in revenue growth is expected

Alibaba beat earnings expectations in its Q1 FY23, with a flat revenue growth year on year, and a 29% decline in its earnings per American depositary share. According to Bloomberg analysts, in the September quarter, the company’s revenue is expected to be at 209 billion Yuan ($29.69billion), or a 3.95% growth year on year.  Its earnings per share are expected to be at 11.225 Yuan ($1.29) or a 2.2% growth year on year.

China’s Covid-lockdowns had a major negative impact on the company’s sales apart from Beijing’s regulatory overhaul on Chinese tech companies in the prior quarter. In the June quarter, Alibaba’s domestic e-commerce sales declined by 1% from a year ago due to a fall in its customer management revenue (CMR). Since mid-June when major Chinese cities came out of restricted lockdowns, e-commerce sales were seen signs of recovery, though China’s renewed covid curbs in October may have had a similar impact on its sales. Alibaba’s domestic active users exceeded 1 billion in FY22, representing the largest market share, paving the foundation for its sales growth. Evidence could be seen in its sales for the first 10 months, which rose 7.2%, higher than a 6.2% growth reported in January. However, Alibaba did not disclose its single-day sales this year for the first time in history, but the number could have reached $84 billion according to Tradingplatforms.com, which may be slightly up from last year’s sales of $76.1 billion. Alibaba said this year’s gross merchandise volume (GMV) was “in line with last year’s GMV performance despite macro challenges and Covid-related impact.”

A slowdown in the growth of the cloud business 

The year-on-year growth in Alibaba’s cloud business has slowed to 9% in the June quarter from a 12% growth in the prior quarter, but it still accounts for the largest market share in China. The division was hit by Beijing’s crackdown on the online education industry, which caused a major customer loss. The signs of relaxed regulatory scrutiny of the Chinese government could improve the division’s growth outlook.

Technical analysis

Directional bias - bullish

CMC Markets as of 17 Nov (Click to enlarge the chart)

Alibaba (ADR)’s shares price had a major bullish breakout of its descending trendline, confluence with the 50-day moving average resistance of 76.57. MACD indicates that the upside momentum stays strong, suggesting that its share price could hit a further long target of above 86 if earnings results beat expectations.

On the flip side, weaker-than-expected earnings reports could press the shares down and test the near-term support of 71. A breakdown below this level may take the shares back to their October low of 58.


Disclaimer: CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.

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